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S&amp;P Upgrades Australia’s Sovereign Rating Outlook

S&P Global Ratings raised Australia’s sovereign rating outlook as the agency expects the federal budget balance to return to surplus by early 2020s.

The credit ratings of the nation was affirmed at ‘AAA’ and the outlook was revised up to ‘stable’ from ‘negative’.

“We expect steady government revenue growth supported by the strong labor market and relatively robust commodity prices, to be accompanied by expenditure restraint,” S&P said Friday.

The agency expects property prices to continue their orderly unwind, and that this slowdown would not weigh heavily on consumer spending and the financial system’s asset quality.

According to S&P’s assessment, the Australian government has significant revenue flexibility to
achieve budget surplus in 2020 based on its track record of raising general government revenue faster than the growth of nominal GDP.

The government currency estimates a balanced budget by fiscal 2020, a year ahead of its earlier expectations. Nevertheless, large infrastructure spending at the state government level is to likely keep the general government balance negative till fiscal 2021, S&P noted.

The rating agency observed that along with its strong institutions, a credible monetary policy, and floating exchange-rate regime, Australia’s public finances traditionally have been a credit strength for the sovereign rating.

“We also consider the Australian government to have more willingness and ability to raise revenue than most other sovereigns,” said S&P.

S&P forecasts net general government debt to peak at close to 23.3 percent of GDP in the fiscal year ending June 30, 2020. The headline GDP growth is seen at around 3 percent in fiscal 2019.